芬塔 (VTR) 2002 Q1 法說會逐字稿

Good day and welcome to this Ventas, Inc. conference call. Today's call is being recorded. At this time, for opening remarks and introduction I will turn the call over to Burton Wright. Please go ahead.

Thank you. Welcome to the Ventas conference call. We will review the results for the first quarter of 2002. These items were the subject of a press release issued this morning. Let me note the company previously issued a press release advises this conference call is open to the general public on a listen-only basis over the Internet. As we start, let me express that all projections and predictions and certain other statements to be made during this conference call may be considered forward-looking statements within the meaning of the federal securities laws. These projections, predictions and statements are based on management's current beliefs, as well as on a number of assumptions concerning future events. The statements are subject to many risks, uncertainties and stockholders and others should recognize actual results may differ materially from the company's expectations, whether expressed or implied. We will refer you to the company reports filed with the Securities and Exchange Commission, including the company's annual report on form 10-k for the year ended December 31st, 2001, and the company's other reports filed periodically with the SEC for a discussion of these factors that could effect these forward-looking statements. Many factors are beyond the control of the company and management. The information being provided today is of this date, only. Ventas disclaims any obligation to release publicly updates or revisions to forward-looking statements to reflect any changes in expectation.

Thank you, Burton. Good morning and thank you for joining us for the earnings call. Mary Smith, our chief accounting officer, joins me today. You will be happy to know John Thompson is on the road today reacquainting himself with opportunities. The key take away from our call this morning is Ventas continues to deliver strong ask solid quarterly earnings and earnings growth and we have successful recapitalized our balance sheet to lower our cost of debt, provide the company with acquisition capacity and create greater flexibility for the company as we move forward. I will begin by recapping our first quarter results. FFO totaled $22.1 million, or 32 cents a diluted share. The quarter was a straight-forward one and did not include Kindred equity sales. It did have the benefit of [inaudible] from transactions that closed in December of 2001. FFO was up 15 percent over the prior quarters normalized number and up 5 percent over the year-ago period. Net income was 12.7 million or 18 cents a diluted share, which shows similar improvement over prior period. Breaking down our results, rental income for the quarter totaled $46.4 million. Interest income for the quarter continues to trend down. This quarter approximately $300,000. This is the result of our deliberate efforts to keep less cash on the balance sheet, coupled with lower interest rates. GNA and professional fees, taken together, total 2.9 million for the quarter, which represents the year over year reduction of 19 percent and 33 percent. We do expect these amounts to vary and likely increase during the rest of 2002. Interest expense on our debt declines 2 million from the last quarter of 2001 to 19.9 million. As a result, the savings from [inaudible] closed in December and our continued debt paid out efforts.

Finally, in this quarter, unlike 2001, we are not recording a tax provision. There is no tax provision in 2002 because we intend to distribute more than one hundred percent of our 2002 taxable net income. Therefore, we will not be subject to income tax this year. I also want to touch on a few points outside of our financial statement. Our Kindred Properties continue to perform well. Through 2001, Kindred's deepest arm, that is before management fees, covered rent by over two times. Its EBITDA is fully loaded for corporate overhead and covered rent over 1.7 times. Kindred Healthcare continues to show positive operating trends and financial improvement. This is reflected in part by Kindred's continuing strong cash position of over $200 million that offsets their outstanding debt balances. Equity is trading at $45 per share and we continue to hold 1.1 million common shares.

We at Ventas have been on a tear over the last six months, moving to improve our balance sheet. We begin by closing the $225 million nonrecourse [inaudible], which priced at 1 46 over LOBOR. In April, after the close of the first quarter, we completed a successful total recapitalization. This refinancing was structured in two parts. The first part consisted of 400 million dollar unsecured bond offering. inaudible], with a weighted fixed interest rate of 8.89 percent. We were gratified over 80 accounts participated in this offering and this spread and issuance were 377 and 384 over comparable treasuries and our bonds have traded well since the offering. The second part of our refinancing consists of the secured bank facilities totaling $350 million. inaudible] at a lended [inaudible]. Bank transaction includes grid pricing that will reduce our spread over LIBOR, if and as we improve our leverage assistance.

To summarize, before the one-year anniversary of Kindred's emergence from bankruptcy, Ventas [inaudible] 8 and a half percent. The majority of that debt is unsecured. We now have an excellent staggered maturity schedule that contemplates debt maturity in 2005, 2006, 2007, 2009 and 2012. Our debt balance after the closing of these transactions was $845 million. Going forward, you should factor in the cost of these transactions by assuming about 1.1 million per quarter in the first financing fees. All land, as previously announced, we expect to see April refinancing and that will add 6 cents per share to FFO to the company. On the regulatory front, [inaudible] when it recently confirmed our expectation that the 20 percent [inaudible] fiscal year until October of '03. The operators will continue to receive about 1 billion in funding for at least another year.

Congress is now engaged in its usual budget wrangling about the remainder of the Medicare issues. We continue to believe it will act responsibly to maintain most, but not necessarily all of the DBRA and funding in the system beyond October of 2002. The most important pointed here for Ventas REIT holders is we are above market. Kindred can weather a meaningful amount of margin compression without reducing cash flow to rent coverage under our leases to an even market level. Looking forward, we have issued normalized FFO guidance for 2002, up between $1.28 and $1.30 per share. This normalized FFO will represent earnings growth and will exclude gains and losses, including from sales of Kindred Equity [inaudible]. During the year, you will see our cash REIT increase $6 million per year because of the 3 and a half percent escalators in our leases with Kindred. That escalator kicked in on May 1. You will also see our interest expense decline on account of the April refinancing transaction. However, you will see those benefits eroded in part because of reduced interest income, higher professional fees and higher GNA as we continue to hire more management and staff, create a technology-based asset management system, renew our corporate insurance program and become engaged fully in negotiating and underwriting perspective acquisition transaction.

When you run all the changes through your model, you will see Ventas should deliver year over year normalized FFO growth of approximately 14 or 15 percent. So, we have been on an excellent run and feel good about the balance of the year. We appreciate the support we have received from our shareholders and the equity market and our new bondholders. Each continue to recognize the reliability of our cash flow, the turn around in the healthcare sector. Ventas's earning growth potential and we [inaudible] improve the company. I will be happy to answer any questions that you may have.

The question and answer question will be conducted electronically. To ask a question, firmly press the * key, followed by 1 on the telephone keypad. We will take your questions in the order you signal us. Once again, if you have a question, please press * 1 at this time. We will take our first question from Doug Simpson with Merrill Lynch.

Good morning. I was wondering, Debbie, if you can provide us with color regarding your thoughts on acquisitions and along those lines, could you comment on the availability of operators for assets both on the long-term in the skilled nursing and assisted living spaces?

I will do my best to do that, Doug. We continue to be at the reacquainting and information-gathering stage in our diversification and acquisition efforts. We have received a good reception from a variety of potential acquisition forces, some of whom are operators who might be willing to do sales transactions in order to grow their business. I would say directly to your point, we expect there to be an availability of operators who want to grow their business. I would guess they will be regional operators and probably non-public ones, who had fort folios they want to grow and to whom our money would be useful. We only want to do certain transactions. We want to do business with operators who we have confidence in. I think we will be willing to be somewhat creative in structuring to try to distinguish ourselves from our peers and hopefully that will give us some advantage in getting in the door with the people we want to do business with.

Uh-huh. Maybe one other question. Could you talk a little about how you balance dividend increases, versus debt paid down in terms of excess cash flow? Obviously, you have the Kindred and the grid pricing on the recent financing and you have an added incentive, according to how you balance those.

That is a good question. We think about that a lot. We will have a variety of sources of cash flow, including excess cash flow from operations as we continue to grow, earnings and [inaudible] the Kindred Equity and so on. We believe that we would give a slight advantage to debt pay down as we move forward. We have made commitments to various constituencies that we want to deliver. We think we will be safer and more reliable and will decrease our waited average cost of debt, making acquisitions more attractive. So, I think we would give an individual to debt pay down because we think we are delivering to our shareholders, if we grow FFO 14% and have a 7 percent yield, that is a pretty attractive total shareholder return to our REIT shareholders. I think increasing the dividends at this point during 2002, for example, would not necessarily be the best use of our cash.

Okay. Thanks.

Our next question comes from Jerry Dotro[phonetic], with Lake Mason[phonetic].

Good morning. I was wondering if you can give us more color on GNA. You are staffing up and it might vary. Do you have a sense of [inaudible] for the year?

2 points on the first quarter. We budgeted in hiring more people in the first quarter, so GNA was lower than budget. And we ended up having a lot of professional fees in the quarter, but most of them were allocated to new transactions and are capitalized and show up in deferred financing fees. We would guess, as I have said before, professional fees will range in the 750 to million dollar a quarter range.

Again, particularly as we start looking at acquisitions and underwriting and negotiating transactions that may or may not come to fruition. That is where we think you should look at professional fees on a [inaudible]. GNA tends to vary anywhere from one hundred over where we are to 500 over where we are, depending on how we price our insurance program per quarter.

Okay. Again, just to clarify, you said two things about dividend. You don't think it made sense to increase it this year. You said you had one hundred percent. To satisfy your pay-out, you are fine and don't have to increase from where you are?

Where we are now, we are fine right now and would not be forced to increase the dividend due to the taxable income.

On acquisition strategy, do you have an assumption about levels of acquisitions made this year?

In our projections, we assume no acquisitions this year and no further sales of the Kindred Equity. It is a steady model. If we are successful during the year in making creative acquisitions we will give guidance at that time about how transactions are expected to be. One other point on dividend, we would in fact relook at the dividend. We look at it every quarter, obviously. As we look toward 2003, we would expect our dividend to increase assuming our cash flow continues to increase. I want to be clear about that.

And then, just in terms of the other operators that you mentioned, we know what is going on with Kindred publicly filing as they do. Any other issues there on the - in terms on performing operators or sales or anything else that we should be aware of?

Yeah. We have really very few drifts. We sold one facility that had been closed. It was an HIS facility. We do have little drifts, but nothing exciting or material.

Great. Thanks.

If you have a question, press * 1. Moving on. Go to Chuck Russ.

Hello. Couple of quick questions. Back to the GNA. Given the number you just gave it sounds about like 14 million on a normalized [inaudible]. Is that where you are pushing us?

Yeah. We typically, with budgeting in the 14 to 15 million range. We budget conservatively and hopefully await positive surprises, rather than budgeting tight and having something unexpected, like an insurance increase throw us overbudget. I would say 14 or 15 range is what we would be looking at.

You mentioned one of the negatives for this year is insurance. What is going on there? Why are insurance costs going up so much?

Again, our insurance program rolls around in mid-year. I think you will find across the board at every company that insurance costs have been going up by virtue of the 9-11 catastrophe. There is nothing unusual that would make insurance costs go up. We hope it will be less in the market generally. Most people are having that experience with their insurance rollover.

Okay. The $343,000 of [inaudible], I assume Kindred's stock [inaudible]?

No, the Kindred stock shows up on the gain.

I believe every quarter you have [inaudible] income?

We do. The gain in the Kindred Equity value shows up on the balance sheet. The gains or losses in the Kindred Equity do not show up on the income statement.

Okay. And has there been movement in the past two months on the tax question regarding the Gasro[phonetic] fund?

We continue to make progress on the 1997 and 1998 audit. It continues to move. It is on track, if you will. We feel comfortable with the company's position. And we continue to believe that some of those escrow funds will be an asset to the company. We feel good about where we are. That will progress along on its normal terms and hopefully get some clarification in the third quarter.

In the third quarter. Okay. I think a couple of months ago you expected some resolution by this year. Have there been developments over the past couple of months to look like it will get results sooner?

We believe at present it will get resolved this year, hopefully in the third quarter. So, I think things are narrowing and it is moving along. I think in line with our expectations.

Thank you.

Jerry Dock[phonetic] has a call.

I am curious about additional insight to the long-term acute care and if that is an issue that affects Kindred?

They published a proposed rule in March. We had our experts study it and have talked to Kindred about GPS. The important things [inaudible]. The rule was pretty much in line with everybody's expectations. Kindred has publicly stated they don't see a material impact from the rule and that is consistent with our own overview analysis. They are more in tune with that than we are.

I would note that the rule is not final yet. I know from our lobbyists that there have been proposed wage hike adjustments proposed to the rule, which may pronounce to be beneficial for Kindred. Until the rule is really final - I think more importantly, until we see it running through Kindred's operations, which we won't view until the fall of '03. It will be a little difficult to give you a firm number on how we expect [inaudible] to affect them.

On the contrary. Everything is budget neutral and not a material event for them.

We will go to Ron [inaudible].

Good morning. Just a quick question on debt reduction. Debbie, last time we spoke, you said you were budgeting 20 million pay down for '02. Are you still sticking with that?

When we reviewed our model, based upon the bank transactions, you will see we reviewed the balances to about 833 because of the cost of the transactions and the debt balance. Currently it is 845. In the projections we have given currently and on April 17th, we have assumed maybe another 5 million of debt pay down this year. If we do better than that, we will have an improved interest line.

We have no further questions. I will turn the conference back to you.

Okay. We really appreciate your joining us this morning and thank you for your attention and continued support. I look forward to seeing you all and speaking with you in the near future. Thank you.

Thank you for your participation.